Timber market recovery hinges on economy and housing upturn

What is in this article?:

“Everyone is asking, what’s it going to take to see an increase in demand for our southern pine and hardwood timber,” says James Henderson, Mississippi State University assistant Extension professor for forest economics and management, who spoke at the Mississippi Farm Bureau Federation’s Winter Commodity Conference at Jackson. “We want to see increased residential construction, we want to see the supply of existing homes on the market come down, and we want to see the unemployment rate drop — economic growth means more jobs and more people buying houses.”

More About:

TO REVIVE slumping sales of southern pine and hardwood will need increased residential construction, a reduction in the supply of existing homes on the market, and a drop in the unemployment rate, says James Henderson, Mississippi State University assistant professor for forest economics and management.

U.S. timber and lumber sales have taken a major hit as a result of the housing bubble collapse and the economic recession that began in 2008, says James Henderson, and while there has been a glimmer of improvement in the market — thanks in part to China — it may be 2015/2016 before housing starts boost demand to pre-recession levels.

“Everyone is asking, what’s it going to take to see an increase in demand for our southern pine and hardwood timber,” the Mississippi State University assistant Extension professor for forest economics and management said at the Mississippi Farm Bureau Federation’s Winter Commodity Conference at Jackson.

“We want to see increased residential construction, we want to see the supply of existing homes on the market come down, and we want to see the unemployment rate drop — economic growth means more jobs and more people buying houses.”

The timber market is highly correlated with housing construction in the U.S., Henderson notes. “Since 1959, when the Census Bureau started tracking housing numbers, we’ve seen a lot of ups and downs, usually coinciding with recessions.

“From 1959 until the recession that began in 2008, housing construction in the U.S. never dropped below 800,000 units per year. But for the past few years, we’ve only had about 600,000 housing starts.”

That downward trend brought with it a decline in southern lumber production, Henderson says.

“The good news is that the housing market has started to pick up just a little bit and we’re seeing a slight improvement in the timber market.”

Looking back seven years or so, he says, the state average for pine saw timber was $49, and at the end of the fourth quarter 2011 it was $26.45 — “an incredible decline of nearly 50 percent.

“Interestingly, high grade and mixed hardwood timber have held their value during this market decline much better than pine.”

Real estate analysts say about a six month supply of existing and newly-constructed homes is a healthy market, Henderson says. “Just before the recession, home prices had become exaggerated — people were paying incredible prices and inventory had become very low. Then came the housing bubble and housing numbers peaked at around 12 months of supply. The government’s first time buyer housing credit helped bring down inventories somewhat, but a series of long-term employment-related foreclosures brought the number back up.

“Now, the housing inventory is getting back near a six month supply. While there is still a shadow of foreclosures hanging over the market, that situation is looking better and that’s why we’ve seen home construction moving up a bit.”

But to bring more existing and constructed homes out of the market, Henderson says, “We need to bring down the unemployment rate. That has dropped from more than 10 percent to around 8.5 percent, which is good. But it needs to be better.

“Since September 2010, housing starts and permits, a leading indicator of home construction, have been trending up. That’s positive.

“The leading index for the U.S. gross domestic product is positive, at about 1.6 — not fantastic, but good. All this is positive for the long-term outlook for the U.S. timber economy.”

The National Association of Home Builders is forecasting that the slump over the past three years is going to start clearing up by 2013, he says.

“A healthy level of housing starts, they say, should be about 1.5 million housing starts — and that’s when we should start to see real improvement in the timber market. The question is, how long is it going to take to get to that 1.5 million number? Extending the trend line of housing starts, it looks like it will be 2015 and into 2016 to reach that level.”